Sowell claimed it's a “well-documented fact” that cap gains tax cuts raise revenue, but numerous economists disagree

Written by Greg Lewis

Published

In a column criticizing Sen. Barack Obama's tax proposals, Thomas Sowell wrote that it is a “well-documented fact” that “lower tax rates on capital gains had produced more actual revenue collected from that tax than the higher tax rates had.” In fact, numerous economists have challenged the assertion that cuts in the capital gains tax raise revenue in the long term. The nonpartisan Joint Committee on Taxation estimated that the 2006 extension of the 2003 cuts on capital gains taxes would result in decreased revenues of $20 billion over 10 years.

In his July 15 syndicated column criticizing Sen. Barack Obama's tax proposals, Thomas Sowell wrote that "[w]hen [ABC World News anchor Charles] Gibson reminded him of the well-documented fact that lower tax rates on capital gains had produced more actual revenue collected from that tax than the higher tax rates had, Obama was unmoved." However, as Media Matters for America documented when Gibson claimed during an April 16 Democratic presidential debate that “in each instance, when the [capital gains tax] rate dropped, revenues from the tax increased,” numerous economists have challenged the assertion that cuts in the capital gains tax raise revenue in the long term. The nonpartisan Joint Committee on Taxation estimated in June 2006 that the 2006 extension of the 2003 cuts on capital gains taxes would result in decreased revenues of $20 billion over 10 years.

Additionally, Sowell asserted: “Since about half the people in the United States own stocks -- either directly or because their pension funds buy stocks -- socking it to people who earn capital gains is by no means socking it just to 'the rich.' But, again, that is one of the many facts that don't matter politically.” In fact, most distributions from two common forms of retirement accounts -- 401(k) and IRA -- are taxed as regular income, not as capital gains. Additionally, Obama said after the debate that he would not raise the capital gains tax rate on individuals with income of less than $250,000.

From Sowell's July 15 column:

Politicians' top priority is to solve their own problem, which is how to get elected and then re-elected. Barack Obama is a politician through and through, even though pretending that he is not is his special strategy to get elected.

Some of his more trusting followers are belatedly discovering that, as he “refines” his position on various issues, now that he has gotten their votes in the Democratic primaries and needs the votes of others in the coming general election.

Perhaps a defining moment in showing Senator Obama's priorities was his declaring, in answer to a question from Charles Gibson, that he was for raising the capital gains tax rate. When Gibson reminded him of the well-documented fact that lower tax rates on capital gains had produced more actual revenue collected from that tax than the higher tax rates had, Obama was unmoved.

The question of how to raise more revenue may be the economic issue but the political issue is whether socking it to “the rich” in the name of “fairness” gains more votes.

Since about half the people in the United States own stocks -- either directly or because their pension funds buy stocks -- socking it to people who earn capital gains is by no means socking it just to “the rich.” But, again, that is one of the many facts that don't matter politically.

What matters politically is the image of coming out on the side of “the people” against “the privileged.”

If you are a nurse or mechanic who will be depending on your pension to take care of you when you retire -- as Social Security is unlikely to do -- you may not think of yourself as one of the privileged. But unless you connect the dots between capital gains tax rates and your retirement income, you may fall under the spell of the well-honed Obama rhetoric. Obama is for higher minimum wage rates. Does anyone care what actually happens in countries with higher minimum wage rates? Of course not.